Request for Consent Project Pollen Noteholder meetings October 2017 - - PowerPoint PPT Presentation

UPP Bond 1 Issuer Plc Request for Consent – Project Pollen

Noteholder meetings October 2017

Disclaimer

This presentation is being distributed by UPP Bond 1 Limited (“Group Agent”) pursuant to the Notice to Noteholders dated 17 October 2017. This presentation contains forward looking statements that reflect the current judgement of the management of the Obligors regarding conditions that it expects to exist in the future. Forward looking statements involve risks and uncertainties because they relate to events and depend on circumstances that will occur in the future and, accordingly, are not guarantees of future performance. Management’s assumptions rely on its

• perational analysis and expectations for the operating performance of each of the Obligor’s assets based on their historical operating

performance and management expectations as described herein. Factors beyond management’s control could cause events to differ from such assumptions and actual results to vary materially from the expectations discussed herein. Noteholders are cautioned that the assumptions and forecast information included herein are not fact and should not be relied upon as being necessarily indicative of future results and are cautioned not to place undue reliance on such assumptions and forecast information. It should also be noted that the information in this presentation has not been reviewed by the Obligors' auditors. This presentation is not intended as an offer for sale or subscription of, or solicitation of any offer to buy or subscribe, any security of UPP Bond 1 Issuer PLC nor should it or any part of it form the basis, of or be relied on in connection with, any contract or commitment whomsoever. 2

UPP BOND 1 ISSUER PLC

Agenda

1. Introductions and UPP Bond 1 2. Background to the Request 3. REIT Conversion and Proposed Changes 4. Supporting Evidence 5. Requested Consent 6. Monitoring Advisor recommendation 7. Noteholder Meeting 8. Process and Timetable 9. Questions

UPP BOND 1 ISSUER PLC

1. Introductions and UPP Bond 1

UPP Board Directors

Richard Bienfait Chief Financial Officer Richard.Bienfait@upp-ltd.com 07801 677998 Jon Wakeford Group Director Strategy and Communication Jon.Wakeford@upp-ltd.com 020 7398 7208

5

Components of the Business Model

• Infrastructure located in heart of campus
• Long term, stable, RPI linked rental income with ability

to pass-through costs, e.g. utilities, insurances and changes in law

• 33,000 rooms under operation, in excess of 3,000 rooms

currently at preferred bidder.

• 1,494 rooms under asset management agreements with

Imperial College, London and the University of Bath

• Insulation from property value volatility
• Significant student demand (>supply) and long term

restrictive covenants on universities (e.g. minimum student/bed ratio) mitigates demand risk

• Robust marketing and allocation obligations on the

partnering university

• Fixed price contracts for FM services
• Pass through of credit and void risk to university once

license agreement signed

• Alignment of long-term commercial interests between

university and UPP Group

UPP Group Portfolio

UPP Bond 1 portfolio in red

6

Business Highlights

• UPP Bond 1 Issuer Plc issued a £382.1m secured bond listed on the Irish Stock Exchange on 05

March 2013 against the income from the properties at the universities of York, Nottingham, Nottingham Trent, Kent, Oxford Brookes and Plymouth (“the AssetCos”). UPP Bond 1 Holdings Limited is a wholly owned subsidiary of UPP Group Limited holding Company for the six AssetCos.

• This issuance comprised two tranches:

£307.1m 4.9023% Amortising Fixed Rate Bond due 2040 £75m 2.7291% Amortising Index Linked Bond due 2047

• A further issuance relating to the acquisition of UPP (Exeter) Limited was made 09 December 2014.
• This issuance comprised of a further tranche:

£149.7m 1.037% Amortising Index Linked Bond due 2049.

• Occupancy for 2015/16 of 99.9%
• Turnover for FY 2015/16 £61.3m up by 3.5%, reflecting RPI linked annual term rental income

increases

• Operating cash flow for 2015/16 of £35.5m
• Both Historic and Projected Annual Debt Service Coverage Ratios comfortably above lock up

triggers post year end

• AssetCos achieving 100% occupancy

7

UPP BOND 1 ISSUER PLC

• 2. Background to the Request

Background

UPP Group is proposing to convert to a UK Real Estate Investment Trust (REIT). As a REIT:

• the cash-flows in each AssetCo will be more resilient, because the incidence of UK corporation tax on property income

moves from each AssetCo to UPP’s ultimate shareholders, upon their receipt of property income distributions; and

• the AssetCos will be able to mitigate the adverse impact on cash-flows arising from

the proposed changes to UK tax legislation, particularly the imminent implementation of BEPS and related tax loss restrictions. UPP has obtained tax, accounting and legal advice to ensure the UPP Group and its AssetCos can satisfy the conditions of the HMRC’s REIT regime. UPP has received clearance from HMRC on relevant technical matters which removes all obstacles from converting to a REIT. UPP plans to implement the conversion to a REIT on 30 November 2017. Clifford Chance has been retained to provide advice to the Issuer Security Trustee and the Monitoring Advisor.

9

UPP BOND 1 ISSUER PLC

3. REIT Conversion and Proposed Changes

Outline of REIT Conversion

• Conversion to a REIT does not require significant structural changes to the existing UPP group.
• Conversion to a REIT requires the ultimate holding company of UPP Group to file a written election with HMRC, following

which all the AssetCos will be exempt from UK corporation tax on their property income and gains.

• The proposed steps to implement the REIT conversion do not create a tax cost.
• The principal changes to the structure are:
• the establishment of new ultimate holding company , in order

to meet the specific REIT requirements for a listed parent company;

• waiver of the existing subordinated shareholder debt between each AssetCo and UPP Bond 1 Limited (“ParentCo”)

(the “Intra Group Debt Waiver”); and

• flexibility to access future surplus cash of the AssetCos by way of dividends or upstream loans.

11

SUKT SUKA UPP Group Holdings UPP Group Limited PGGM Okra Gee New HoldCo 60% 40% SUKT SUKA UPP Group Holdings UPP Group Limited Ordinary shares issued Ordinary shares issued

Purpose:

• A

new ultimate holding company (the “New Topco”) will be established and its equity will be listed on The International Stock Exchange (TISE). This new ultimate holding company will satisfy the UK HMRC requirements for a REIT company.

• A new company has been established in order to make the listing

process easier.

Bond documentation restrictions:

• Establishing a new ultimate holding company does not of itself

require the consent;

• the Tax Deed of Covenant obligates SUKT (the “Retiring TopCo”)

to procure that the New TopCo enter into a deed supplemental to the Tax Deed of Covenant pursuant to which the New TopCo will give the same representations, warranties and covenants as the Retiring TopCo has given in the Tax Deed of Covenant;

• however, as the Retiring TopCo will no longer have any control
• ver the Group, it is proposed that the Retiring TopCo is

effectively released from all its obligations under the Tax Deed of Covenant by novating these to the New TopCo. This will require the consent of the Issuer Security Trustee.

Establishment of a new holding company

12

UPP Group Limited UPP Bond 1 Holdings UPP Bond 1 UPP Bond 1 Issuer plc Bond Group

• +

+ UPP (Broad. Park) Hold. UPP (Kent Student Acc.) UPP (Oxford Brookes) UPP (Alcuin) UPP (Plymouth 3) UPP (Exeter) UPP (Nottingham) UPP (Broad. Park) Dormant entity Dormant entities Dormant entity + +

• AssetCo sub-debt

is released Key Sub-debt at these levels remain in place

Purpose:

• Once UPP converts to a REIT, from a tax perspective, it will be no

longer be possible to offset the interest income generated from the subordinated debt in ParentCo by the interest expense in the AssetCos, thereby creating a tax inefficiency. Waiving the sub debt removes this tax inefficiency.

• The original purpose for structuring sub debt into each AssetCo

was to provide flexibility to extract surplus cash from the AssetCos. Bond documentation restrictions:

• The waiver by the ParentCo of the existing subordinated

shareholder debt is restricted and consent of the Issuer Security Trustee is also required as a result of the Intra-Group Debt Documents being Assigned Agreements for the purpose for the purpose of the AssetCo Debentures and ParentCo Debenture.

• The consent of the Issuer Security Trustee for the purposes of the

Intra-Group Debt is sought by means of the Proposal Request.

• The Intra-Group Debt Waiver will result in the release of rights in

respect of the Intra Group Debt from the security created pursuant to the AssetCo Debentures and the ParentCo Debenture and, as such, constitutes an Entrenched Right pursuant to limb (m) of the definition thereof as contained in the Common Terms Agreement (“CTA”).

Intra-Group Debt Waiver

13

UPP Group Limited UPP Bond 1 Holdings UPP Bond 1 UPP Bond 1 Issuer plc Bond Group

• +

+ UPP (Broad. Park) Hold. UPP (Kent Student Acc.) UPP (Oxford Brookes) UPP (Alcuin) UPP (Plymouth 3) UPP (Exeter) UPP (Nottingham) UPP (Broad. Park) Dormant entity Dormant entities Dormant entity + +

• AssetCo sub-debt is

released Key Sub-debt at these levels remain in place

Purpose:

• The sub debt between the AssetCos and the ParentCo currently

allows access by the ParentCo to surplus cash in the AssetCos. Once the Intra-Group Debt Waiver has been effected, we seek flexibility with the existing cash pooling arrangement and by way of dividends to allow access to future surplus cash in the AssetCos. Bond documentation constraints:

• Cash extraction from the AssetCos to ParentCo is permitted

pursuant to the Transaction Documents, subject to compliance with the provisions set out in Schedule 14, Part 1, Paragraph 12

• f the CTA.
• It is proposed that any such cash extraction will only be made

in compliance with these provisions and so no amendments or waivers are being requested in respect of these.

Flexibility to Access Future Surplus Cash

14

UPP BOND 1 ISSUER PLC

4. Supporting Evidence

Independent Expert Advice

16

UPP has sought independent expert advice from:

• Deloitte for tax advice;
• PWC for structuring and accounting advice; and
• Addleshaw Goddard for legal advice.

Deloitte has produced a report confirming that no negative tax implications will arise as a result of the Proposed Changes, a copy of which has been provided to the Monitoring Advisor for the purpose of advising the Issuer Security Trustee (the “Independent Tax Report”). The Independent Tax Report can be made available, subject to the entry into a hold harmless letter. PWC has produced a report explain the structuring advice provided for each of the implementation steps. The structure report can be made available, subject to the agreement of hold harmless requirements set out by PWC. The Monitoring Advisor and the Issuer Security Trustee are being advised by Clifford Chance.

UK Tax Legislation Changes

Impending changes to United Kingdom tax legislation will (if no conversion to REIT status occurs) very significantly affect the tax position of the AssetCos. Those changes (which are explained in detail in the Independent Tax Report) are:

• the likely restriction on tax relief for interest and financing costs associated with the Intra Group Debt; and
• particularly, limitations on use of existing brought forward losses.

Taken together (and assuming the changes are introduced as announced), UPP has modelled and calculated that (absent the REIT conversion) significant amounts of corporation tax will become payable for each year, commencing with the financial period commencing 1st September 2018. This compares to the original financial models prepared at the time of issue of Bonds that projected that the AssetCos would not become tax paying at all for a considerable number of years (due to the prior availability of such financing costs and brought forward tax losses).

17

Modelling Output - ADSCR

The graph shows the ADSCR for the aggregate AssetCos before and after the REIT conversion. The ADSCR profile for the pre REIT scenario assumes the implementation by UK HM Government of BEPS and tax loss restrictions, as per the draft legislation for the second Finance Act 2017. As a result of the REIT conversion, the cash- flows of the AssetCos, and ADSCR profile for the post REIT, are improved as a result of the Corporation Tax no longer being payable by the AssetCos throughout the life

• f

the concession arrangements. Tax computations pre and post REIT are scheduled to the proposal request.

18

UPP BOND 1 ISSUER PLC

5. Requested Consent

Requested Consent

The UPP Bond 1 documentation contains two consent procedures which overlap. The consents requested in order to effect the REIT conversion falls within the scope of both consent procedures. Therefore the Group Agent, UPP Bond 1, issued both a Proposal Request and a Monitoring Advisors Proposal Request (“MA Proposal Request”) on 9 October 2017, in order to initiate the two procedures. Effectively, the Group Agent requires the consent of the Issuer Security Trustee under both procedures. The Issuer Security Trustee will need to be directed by: a. Issuer Secured Creditors (“ISC”) consent; each ISC either must approve or be deemed to approve by not responding within the relevant decision period; and

• b. Noteholder consent by means of an Extraordinary Resolution, which requires 75% of holders to vote in favour with a quorum of

more than 50% noteholders.

20

UPP BOND 1 ISSUER PLC

6. MA Recommendation

MA Recommendation

On 13 October, 2017, the Monitoring Advisor notified the Issuer Security Trustee of its recommendation to the Issuer Secured Creditors to approve the MA Proposal Request subject to procedural points which the Group Agent will address.

22

UPP BOND 1 ISSUER PLC

7. Noteholder Meeting

Noteholder Meeting

On 17 October, UPP Bond 1 Issuer PLC issued a Notice to Noteholders of a meeting to be held on 8 November 2017 to consider the Extraordinary Resolution which is effectively seeking consent to the Requesting Consents documented in the Proposal Request and the usual protections for the Issuer Note Trustee.

24

UPP BOND 1 ISSUER PLC

8. Process and Timetable

Process and Timetable

26

On 9 October, the Group Agent, UPP Bond 1, issued a Proposal Request and an MA Proposal Request. On 13 October, the Monitoring Advisor issued its MA recommendation to the Issuer Secured Trustee. On 17 October, UPP Bond 1 issued a Notice to Noteholders in respect of a meeting to be held on 8 November 2017. Noteholders are asked to vote in accordance with the usual clearing system procedures in response to the Notice to Noteholders as soon as possible and before the Noteholder meeting on 8 November 2017. For the other Issuer Security Creditors the deadline for responding to the proposal requests is 23 November 2017. Assuming all consents are obtained, the intention is to effect the changes to implement the REIT structure on 30 November 2017.

UPP BOND 1 ISSUER PLC

9. Questions